Nigeria Tax Act 2025: How Assessable Profits Are Calculated

Nigeria Tax Act 2025: How Assessable Profits Are Calculated

One of the most important questions for businesses and professionals when it comes to taxation is: what profits will the government assess for tax purposes? The Nigeria Tax Act, 2025 provides clear guidance on this, setting out rules for ongoing businesses, new businesses, businesses that change their accounting dates, and even those that cease operations or involve deceased individuals.

The Standard Rule

For most businesses, the assessable profits for a tax year are taken from the accounting period immediately preceding that year. In other words, when a company is being assessed for 2025, the profits that will be considered are those earned during its 2024 accounting period. This keeps assessments consistent and tied to recent performance.

New Businesses

For businesses just starting out, the rules are slightly different. The profits used for the first year of tax assessment cover the period from the date the business begins operations in Nigeria up to the end of its first accounting period. This ensures that even new businesses contribute fairly from the moment they begin earning.

Changing Accounting Dates

Sometimes businesses change their accounting dates. When this happens, the assessable profits for the relevant year are calculated from the end of the old accounting period up to the new accounting date. From then on, future tax assessments are based on the new accounting year. The law requires that businesses notify the tax authority of such changes within 30 days before the normal filing date. This rule prevents confusion and ensures transparency.

Cessation of Business

If a business permanently closes down in Nigeria, the assessable profits for that year are measured from the start of the accounting period to the actual date the business ceases. If the business or its liquidators receive or pay any sums after the cessation date—such as debts collected or final payments—those amounts are treated as if they had been received or paid on the last day of operations. The business is required to report such sums to the tax authority within one month.

Adjustments and Special Cases

Where post-cessation receipts or payments arise, additional tax assessments may be issued, or reductions may be made if appropriate. The Nigeria Tax Administration Act, 2025 applies in these cases, meaning businesses retain the right to object or appeal.

In the case of an individual who passes away, the law also provides for continuity. If a personal representative receives or pays any sum that would have been included in the deceased’s profits, that amount is deemed to have been received or paid by the individual on the last day before death. This ensures that tax obligations tied to business activities are settled even after the individual’s passing.

Why This Matters

These rules highlight the importance of timing in tax assessments. Whether a business is ongoing, just starting, changing its accounting cycle, or winding down, the law ensures that profits are captured and fairly assessed. It closes potential gaps that might otherwise allow businesses or individuals to avoid tax on income earned in Nigeria.

For entrepreneurs, accountants, and professionals, understanding these provisions means fewer surprises when tax assessments are issued. It also reinforces the need for strong bookkeeping and timely communication with tax authorities.

At Bahas Books, our mission is to simplify complex tax laws into practical knowledge. By knowing how assessable profits are calculated, you can better plan, stay compliant, and avoid unnecessary disputes with regulators.

For more insights on taxation and compliance in Nigeria, visit bahasbooks.com.

Comments

Post a Comment

Popular posts from this blog

  Understanding the Four Pillars of Taxation At Baha's Books , we believe that understanding taxation is the first step to building financially sound businesses. Whether you are a startup, an SME, or an established corporation, knowing how tax systems work can help you stay compliant and make informed financial decisions. In this post, we’ll break down the four major pillars of taxation every business owner should know: Tax Policy, Tax Legislation, Tax Administration, and Tax Jurisprudence. 📘 Tax Policy Definition: Tax policy refers to the guidelines and principles established by government for the implementation and collection of tax. Why it matters: Tax policy sets the tone for the entire tax system. It reflects government priorities—whether to encourage investment, promote equity, or raise revenue. A sound tax policy ensures fairness, clarity, and predictability in the tax environment. 📗 Tax Legislation Definition: Tax legislation is the body of tax laws, rules, a...
Read more

Dividend Taxation in Nigeria: What Every Business Should Know

  Dividend Taxation in Nigeria: What Every Business Should Know By Baha’s Books 📊 Dividend Income Counts as Profit In Nigeria, any dividend income a company earns — even if tax has already been deducted at the source — must still be included as part of the company’s profits. This means that if your business receives dividends from investments in other companies, you cannot exclude them from your taxable income. They are considered part of your overall profit and will be taxed accordingly. 🟢 Dividends in Shares Are Not Taxed Twice However, there is an important exception. If your company receives dividends in the form of shares (rather than cash), those dividends are not taxed again. This prevents double taxation and provides some relief for businesses investing in other companies. ⚠️ Dividends Without Profit Still Get Taxed Some companies issue dividends even when they have no profit or when their profit is less than the dividends being paid. In such cases, the Nigeri...
Read more